ANNUAL RESULTS Y E A R T O 3 1 M A R C H 2 0 1 9 EXPERTS IN - - PowerPoint PPT Presentation
EXPERTS IN REGIONAL PROPERTY PALACE CAPITAL PLC ANNUAL RESULTS Y E A R T O 3 1 M A R C H 2 0 1 9 EXPERTS IN REGIONAL PROPERTY Palace Capital are experts in regional property investment unlocking value to deliver attractive total returns
EXPERTS IN REGIONAL PROPERTY
Y E A R T O 3 1 M A R C H 2 0 1 9
| Palace Capital plc | Investor Presentation June 2019 | palacecapitalplc.com Page 1
HIGHLIGHTS | STRATEGY | FINANCIAL REVIEW | PROPERTY REVIEW | CONCLUSION | APPENDICES
EXPERTS IN REGIONAL PROPERTY
| Palace Capital plc | Investor Presentation June 2019 | palacecapitalplc.com Page 2
NEIL SINCLAIR Chief Executive STEPHEN SILVESTER Finance Director RICHARD STARR Executive Property Director
⚫ Total property return of 7.1% (FY18: 10.2%) ⚫ Passing rent of £17.7m pa with significant reversionary potential (ERV: £21.5m pa) ⚫ 37 lease events across 235,000 sq ft generating £3.4m rental income pa, averaging 14.4% ahead of ERV ⚫ Property portfolio increased 3.5% to £286.3m (FY18: £276.7m) ⚫ EPRA NAV per share 407p (FY18: 415p) reduced marginally by 2% ⚫ Dividend maintained at 19p ⚫ Proposal to convert to a UK REIT from 1st August 2019
| Palace Capital plc | Investor Presentation June 2019 | palacecapitalplc.com
HIGHLIGHTS
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Palace Capital plc (PCA) is a property investment company with a regional focus delivering attractive total returns
⚫ Entrepreneurial & opportunistic approach ⚫ We drive income and capital growth through refurbishment and redevelopment ⚫ Management has a deep knowledge of the UK regions focussing on office and industrial sectors ⚫ Strong track record delivering attractive returns
| Palace Capital plc | Investor Presentation June 2019 | palacecapitalplc.com
STRATEGY
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RETURNS FOR SHAREHOLDERS
5.5 Year Total Accounting Return vs peer group
(EPRA NAV growth + dividends as at 31 March 2019)
0% 20% 40% 60% 80% 100% 120% 140%
Source: Arden Partners plc
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3.0% 2.7% 2.2% 1.7% 1.7% 1.7% 1.3% 1.0% 0.5% (0.6%) (1.2%) (1.7%) (2.4%)
Standard Industrials Distribution Warehouses Standard Offices Rest of UK Standard Offices South East Standard Offices Rest of London Office Parks Leisure Standard Offices West End Standard Offices City of London Standard Retails Supermarkets Retail Warehouses Shopping centres
ERV Growth 2019 - 2023 % pa
Market outlook supports Palace Capital regional strategy Focus on regional
sectors which show strong forecast returns Our portfolio has limited exposure to retail & Central London sectors
STRATEGY
Total Return 2019 - 2023 % pa Sector Split
6.6% 6.3% 6.0% 5.9% 5.5% 5.4% 5.4% 5.0% 4.5% 3.3% 3.3% 2.7% 2.5%
Distribution Warehouses Standard Industrials Leisure Standard Offices Rest of UK Office Parks Standard Offices South East Standard Offices Rest of London Standard Offices City of London Supermarkets Standard Offices West End Retail Warehouses Shopping centres Standard Retails
Offices 47% Industrial 13% Retail Warehouses 4% Retail 10% Leisure 14% Residential 4% Development 6% Car parking 0.3%
Palace Capital exposure No exposure
Source: Colliers International
FY19: FINANCIAL REVIEW
| Palace Capital plc | Investor Presentation June 2019 | palacecapitalplc.com Page 7
FY19: FINANCIAL REVIEW
FY19 FY18 Growth
INCOME Net rental income £16.4m £14.9m +10% Adjusted profit before tax* £8.9m £8.5m +5% IFRS profit before tax £6.4m £13.3m
Dividend per share 19p 19p
Property portfolio £286.3m £276.7m +3.5% EPRA NAV per share 407p 415p
Net assets £180.3m £183.3m
Net debt £96.5m £82.4m +17% Group LTV 34% 30% +400bps Average cost of debt 3.3% 3.4%
*Excludes non-recurring income and expenditure, property revaluations, profit/losses on disposal and fair value movements
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⚫ The Company received independent advice from Deloitte ⚫ Supports our total return strategy by maximising dividends ⚫ Eliminates double-tax, saving over £1m tax pa, adding +2 pps to earnings ⚫ Expected to broaden shareholder base and increase liquidity in shares
FY19: FINANCIAL REVIEW
| Palace Capital plc | Investor Presentation June 2019 | palacecapitalplc.com Page 9
£22.9m cash available IFRS net assets total £180.3m Group LTV of 34% at 31 March 2019 and within our target range Majority of £5.6m deferred tax liability will be wiped off the balance sheet on REIT conversion
FY19: FINANCIAL REVIEW
FY19 £m FY18 £m
Property portfolio 286.3 276.7 Cash 22.9 19.0 Other assets 7.1 4.5 Borrowings (118.0) (99.8) Deferred tax liabilities (5.6) (6.5) Other liabilities (12.4) (10.6) Net assets 180.3 183.3 EPRA NAV per share 407p 415p Group LTV 34% 30%
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20.0 30.0 40.0 50.0 60.0 70.0 80.0 0-1 1-2 2-3 3-4 4-5 >5 Years
Debt maturity (£m)
FY19: FINANCIAL REVIEW 5 10 15 20 25 30 35 40 45 Barclays NatWest Santander Lloyds I Lloyds II Scottish Widows Floating Fixed
Fixed/Floating (£m)
Group LTV at 34% within target range Average debt maturity
Average cost of debt 3.3% Fixed/hedged: 59% Headroom on debt covenants
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415 407
17.3 0.5 (19.0) (3.9) (1.9) (0.6) (0.4)
395 400 405 410 415 420 425 430 435 440
EPRA NAV Mar-18 Adjusted earnings Profits on disposal Dividends Sale of R.T. Warren portfolio Cost of acquisitions Cost of derivatives Fair value movements EPRA NAV Mar-19
Movements in EPRA NAV per share for the year ended 31 March 2019 (Pence)
FY19: FINANCIAL REVIEW
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Gross property income increased 12% to £18.8m Adjusted profit before tax increased 6% to £8.9m Dividend maintained at 19.0p
FY19: FINANCIAL REVIEW
FY19 £m FY18 £m Growth
Gross rental and other income 18.8 16.7 +12% Property operating expenses (2.4) (1.8) Net rental income 16.4 14.9 +10% Administrative expenses (3.8) (3.3) Net finance costs (3.7) (3.1) Adjusted profit before tax 8.9 8.5 +6% Adjusted EPS* 17.3p 21.2p
Dividend per share 19.0p 19.0p
0.91x 1.12x Weighted average no. shares 45.9m 34.9m
*Adjusted profit before tax less corporation tax charge (excluding deferred tax movements) divided by the weighted average number of shares in the period.
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17.7 21.5 22.4 0.3 2.8 0.7 0.9 15.0 16.0 17.0 18.0 19.0 20.0 21.0 22.0 23.0 24.0 25.0 Passing rent at 31-Mar 19 Rent in rent free Vacant space Reversion Total ERV Under development Total potential
Gross passing rental income per annum (£m)
Source: Cushman & Wakefield
FY19: FINANCIAL REVIEW
PROPERTY REVIEW
⚫ 37 lease events across 235,000 sq ft generating £3.4m annual rental income, averaging 14.4% ahead of ERV ⚫ Overall EPRA occupancy remains high at 87% (FY18: 90%) ⚫ WAULT of 4.5 years to break and 6.2 years to expiry ⚫ Funding secured and construction commenced on HQ York development ⚫ One Derby Square, Liverpool acquired for £14.0m ⚫ Warren residential portfolio of 50 units sold for £18.2m at 97% of book value
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PROPERTY REVIEW
Aldershot Harlow Birm ingham Leeds Dart ford Milton Keynes Farnborough Plym outh Sut ton Banbury Ket tering Burgess Hill London Exeter New castle Rustington Uxbridge Winchester Avonm outh Bristol Ickenham Brighton Liverpool East Grinstead New bury Sheffield Gerrards Cross Tham e Beaconsfi eld Coventry Manchester Fareham Northam pton Staines Halifax Salisbury Verw ood
CONNECTED
Leam ington Spa York Gosport Port sm outh Southam pton Walton On Tham es Weybridge
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PROPERTY REVIEW
Focussed on growth sectors
33
Office
10
Industrial
9
Retail
2
Leisure
2
Retail warehouse
1
Development
Core Sectors Geography
South East 31.3% Midlands 19.9% North East 19.9% North West 19.0% South West 9.9%
| Palace Capital plc | Investor Presentation June 2019 | palacecapitalplc.com Page 17
Top 20 tenants make up 44% of passing rents Good income visibility with broad spread across a diverse tenant base
Tenant Industry Contracted Rent £’000
Leisure 913 Charity 595 Legal 568 Hotel 510 Insurance 408 Retail 401 Auto 399 Legal 360 Technology 355 Car Parking 345
Tenant Industry Contracted Rent £’000
Auto 325 Government 322 Legal 310 Retail 294 Retail 291 Local Authority 283 Health 262 Retail 246 Construction 240 Aviation 240
PROPERTY REVIEW
| Palace Capital plc | Investor Presentation June 2019 | palacecapitalplc.com Page 18
⚫ Planning consent granted for 127 apartments, 35,000 sq ft offices, 5,000 sq ft of commercial and car parking ⚫ Development facility secured with Barclays for £26.5m ⚫ 2 year design and build construction contract commenced Feb 2019 ⚫ GDV £69m – expected surplus +£10m ⚫ Local market for residential & Grade A
⚫ York voted Best Place to Live 2018 by Sunday Times
Marketing & sales launch 20 June 2019 www.hudsonquarteryork.com
PROPERTY REVIEW
October 2018
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Disposal of 50 non-core residential units
⚫ Acquired as part of the R.T. Warren portfolio in Oct 2017 average NIY 3.5% ⚫ Sold on aggregate for £18.2m at 97% book value – ahead of business plan
Funds recycled into… One Derby Square, Liverpool
⚫ Acquired Dec 2018 for £14.0m at 6.75% NIY ⚫ 96% occupancy generating £1.0m net rent pa ⚫ +18% potential rental growth (ERV of £1.2m)
PROPERTY REVIEW
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⚫ Prime location in town centre ⚫ Acquired in 2017 as part of the R.T. Warren portfolio ⚫ Let to Aldi with 12 years remaining at £0.25m p.a. ⚫ New lease completed for 20 years at 17% increase in passing rent, now £0.29m p.a. ⚫ Secure income with benefit of minimum uplifts every 5 years providing long term growth ⚫ Most recent valuation up 28% on purchase price
PROPERTY REVIEW
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PROPERTY REVIEW
Status Historic Performance Future Potential Hudson Quarter, York Planning consent achieved for 127 apartments, 35,000 sq ft offices, 5,000 sq ft of commercial and car parking Acquired in 2013 for £3.8m. Uplift in value to date: £14.9m GDV £69m Development profit +£10m forecast +20pps to NAV Bridge House, High Street, Weybridge Resolution to grant planning consent achieved for 28 residential units and 4,000 sq ft of retail space Acquired in 2014 for £3.5m. 5 years of income, now predominantly vacant Obtain full planning consent. GDV £12m Target IRR 15% 2&3 St James’ Gate, Newcastle Refurbishment of two floors and entrance underway. Forecast lettings > rents on acquisition Acquired in 2017 for £20.0m £1.85m ERV vs £1.47m passing rent +25% potential growth in rents and positive impact on capital value Boulton House, Manchester Centrally located office of 75,000 sq ft 30% vacant space refurbished/ to be refurbished. Acquired in 2016 for £10.5m +38% uplift in value to date £1.30m ERV vs £0.68m passing rent +90% potential growth in rents and positive impact on capital value Kiln Farm, Milton Keynes All 3 buildings refurbished in 2014 and 2017, and re-let. Upward only rent reviews so implicit growth still to come. Acquired in 2013 for £2.3m +315% uplift in value to date £0.81m ERV vs £0.61m passing rent +34% potential growth in rents and positive impact on capital value 249 Midsummer Boulevard, Milton Keynes City centre offices. Short WAULT of 1.6yrs provides opportunity for refurbishment and reletting at ERV Acquired Feb 2016 for £7.2m +7% uplift in value to date £0.68m ERV vs £0.43m passing rent +57% potential growth in rents and positive impact on capital value Black Moor Road, Verwood Multi-let industrial estate let off low average rents of £5.27 psf Small refurbishments and re-let. Acquired in 2017 for £6.1m. +20% uplift in value to date £0.46m ERV vs £0.35m passing rent 33% potential growth in rents and positive impact on capital value Point Four Estate, Avonmouth Multi-let industrial estate let off low average rents of £4.68 psf Small refurbishments and re-let. Acquired in 2013 for £3.4m. +120% uplift in value to date £0.54m ERV vs £0.40m passing rent 36% potential growth in rents and positive impact on capital value
⚫ Right assets in the right locations in the right sectors ⚫ +25% income reversion within portfolio:
– Repositioning city centre office assets with short WAULT of 2.8yrs – +£4.7m potential future income growth
⚫ Capital growth upside:
– +£10m surplus forecast at HQ York – Planning consent on Bridge House, High Street, Weybridge
⚫ Dividend maintained at 19p ⚫ REIT conversion proposed from 1st August 2019 providing tax efficiency +2p EPS
| Palace Capital plc | Investor Presentation June 2019 | palacecapitalplc.com
CONCLUSION
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EXPERTS IN REGIONAL PROPERTY
July 2010 Management taking Board control of the Company valued at £0.1m with a vision to invest in regional property October 2011 Hockenhull Estates portfolio acquired for £1.8m consisting of nine properties October 2013 Sequel portfolio consisting of 24 properties across office, industrial and retail sectors acquired for £39.25m August 2014 Property Investment Holdings portfolio acquired for £32m consisting of 17 commercial properties across
2015-2017 Seven individual property acquisitions at values ranging between £4m and £24m focussed in the office and leisure sectors.
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October 2017 Acquisition of the R.T. Warren Portfolio for £68m and consisting of 21 commercial and 65 residential properties March 2018 Completed move from AIM to a Premium Listing on the Main Market of the London Stock Exchange May 2018 Joined FTSE Small Cap and All Share indices December 2018 One Derby Square, Liverpool acquired for £14.0m August 2019 REIT conversion proposed from 1st August 2019 31-03-2013 31-03-2019 Net asset value £0.6m £180.3m Property portfolio £2.0m £286.3m Contractual rental income £0.2m £17.7m Total Accounting Return since 2013 126%
| Palace Capital plc | Investor Presentation June 2019 | palacecapitalplc.com Page 25
* EPRA NAV in FY18 diluted as a result of £70m equity fundraise at 340p – October 2017 ** Excludes non-recurring income and expenditure, property revaluations, profit/losses on disposal and fair value movements
Balance Sheet FY15 FY16 FY17 FY18 FY19
Property portfolio £102.8m £173.4m £183.2m £276.7m £286.3m Net assets £80.0m £106.8m £109.6m £183.3m £180.3m EPRA NAV per share 393p 414p 443p 415p* 407p Group LTV 23% 37% 37% 30% 34% Income Statement IFRS profit before tax £13.9m £11.8m £12.6m £13.3m £6.4m Adjusted profit before tax** £4.8m £5.6m £6.7m £8.5m £8.9m Adjusted EPS 28.3p 18.9p 22.2p 21.2p 17.3p Dividend per share 13.0p 16.0p 18.5p 19.0p 19.0p Dividend cover 2.1x 1.2x 1.2x 1.1x 0.9x
Strong relationship with existing lenders. Low cost of debt maintained and conservative LTV. 59% debt fixed/hedged to mitigate interest rate risk.
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Lender Debt Facility (£m) Debt Drawn (£m) Debt Maturity Hedging Barclays 39.1 39.1 Jan-2023 £35.5m fixed NatWest (RCF) 29.4 29.4 Mar-2021 100% floating Santander 26.3 26.3 Aug-2022 £19.7m fixed Lloyds I* 3.6 3.6 May-2019 100% floating Lloyds II 6.8 6.8 Mar-2023 100% floating Scottish Widows 14.2 14.2 Jul-2026 100% fixed Barclays (development facility) 26.5 0.0 Oct-2021 100% floating 145.9 119.4 3.6 years Mar-18 Mar-19 Property portfolio £276.7m £286.3m Gross debt £101.4m £119.4m Net debt £82.4m £96.5m Average cost of debt 3.4% 3.3% Group LTV 30% 34% Fixed debt 70% 59% Interest cover 3.1x 3.3x
*Debt facility fully repaid after year end
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2.44 3.27 1.98 1.55 1.77 0.38 0.55 1.28 4.4 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28+
Lease expiries to first break by gross rental income (£m)
Clear income visibility with WAULT of 4.5 years to first break.
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2 4 6 8 10 12 14 2016 2017 2018 London Regional
London vs. regional UK office (% p.a. total property returns)
Source: MSCI Source: Ministry of Housing, Communities, Local Government
2 4 6 8 10 12 14 16 18 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Office conversion to residential (England) (million. sq. ft.) Regional office returns have exceeded those generated by London every year since 2016. Regional offices (47% of our portfolio) provide the strongest, risk-adjusted sector in the UK. Reduction in office supply is driving rental value. Supported by structural drivers and accelerating urbanisation trends.
The Northern Powerhouse is a prime example of a growth hub, where investment in road and rail connectivity has supported rising rents and growth. Graduate retention is high in strong regional cities and we are seeing a definite trend for companies moving into strong inner-city locations as staff turnover is far lower than out-of-town locations. Palace has targeted acquisitions to capitalise on these trends, with office buildings in city centres across the Northern Powerhouse.
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NEWCASTLE LIVERPOOL MANCHESTER SHEFFIELD LEEDS
101 miles 81 minutes
BOULTON HOUSE, MANCHESTER BANK HOUSE, LEEDS ST JAMES’ GATE, NEWCASTLE
36 miles 40 minutes 38 miles 49 minutes 33 miles 36 minutes 44 miles 47 minutes
ONE DERBY SQUARE, LIVERPOOL
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Location is crucial when investing in the regions
According to Centre for Cities strong city centres have a higher than average share of jobs in exporting firms and a lower than average share of these are high- skilled. The majority of city centre offices within the Palace Capital portfolio are in strong locations increasing likelihood of opportunities for value creation.
Source: Centre for Cities 2018
Palace Capital exposure No exposure
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Property Name Area (sq ft) Gross rental income (£) Reversionary yield* WAULT to break (yrs) Broad Street Plaza, Halifax 117,767 1,710,070 7.07% 12.3 2 & 3 St James Gate, Newcastle 99,129 1,473,832 8.45% 3.3 Sol, Northampton 129,703 1,769,994 7.64% 7.7 Hudson Quarter, York development n/a n/a n/a n/a Boulton House, 17-21 Chorlton Street, Manchester 74,653 684,886 7.96% 2.1 One Derby Square, Liverpool 70,161 1,051,696 8.16% 4.0 Bank House, 27 King Street, Leeds 88,036 700,374 9.53% 1.4 Kiln Farm, 2-4 Pitfield, Milton Keynes 52,818 607,900 7.97% 8.0 Units A & B, Imberhorne Lane, East Grinstead 30,672 514,018 5.53% 8.3 249 Midsummer Boulevard, Milton Keynes 49,713 432,593 8.17% 1.6 Total 712,652 8,945,363
* Based on Cushman & Wakefield estimated rental values
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* Based on Cushman & Wakefield estimated rental values
Market value 31 March 2019 (£) % of Portfolio by market value No. properties No. leases Area (sq ft) Contractual rental income (£) ERV (£)* WAULT (yrs) Total ERV
Offices 135,455,000 47.3% 33 122 794,726 8,959,579 12,094,259 2.8 1,928,197 Leisure 41,380,000 14.5% 2 20 247,470 3,480,064 3,341,944 9.9 433,393 Industrial 37,395,000 13.1% 10 38 409,593 2,310,024 2,696,920 3.2 88,700 Retail 28,695,000 10.0% 9 49 137,512 2,058,481 2,483,221 3.9 405,500 Development 18,740,000 6.5% 1
12,331,138 4.3% 36 n/a 22,622 n/a n/a n/a n/a Retail Warehouses 11,540,000 4.0% 2 3 59,477 759,964 679,800 8.3
780,000 0.3% 2 2 8,660 115,132 177,000
286,316,138 100% 95 234 1,680,060 17,683,244 21,473,144 4.5 2,855,790
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⚫ Purchased August 2017 for £20m ⚫ 82,500 sq ft offices average rents £19 psf ⚫ City centre multi let offices ⚫ Recently vacated 3rd floor still being refurbished as well as the ground floor entrance and landscaping upgrade during 2019 for £1.6m ⚫ Limited new build offices in city centre ⚫ Expected newly refurbished space will achieve up to 20% premium to current levels
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⚫ Purchased August 2016 for £10.5m ⚫ 75,000 sq. ft. of multi-let offices in City Centre ⚫ Average rents £12 psf ⚫ 18,000 sq ft vacant space & ground floor reception refurbished with 10,700 sq ft let at headline rentals of £18.50 psf ⚫ Further refurbishments planned ⚫ Since purchase new lettings of 10,700 sq ft completed ⚫ Latest valuation 38% uplift since acquisition
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NEIL SINCLAIR Chief Executive
Chartered Surveyor FRICS
Neil co-founded Palace Capital and has over 50 years’ experience in the property sector. He was a founder of Sinclair Goldsmith Chartered Surveyors which was admitted to the Official List in 1987 and subsequently merged with Conrad Ritblat.
STEPHEN SILVESTER Finance Director
Chartered Accountant FCA
Stephen joined Palace Capital in 2015 and brings over 10 years’ experience as a finance professional in real estate. He previously held the role of Group Financial Controller at NewRiver REIT for 3 years and prior to that was Head of Finance at St Hilliers, a construction, development and property fund management business in Australia.
RICHARD STARR Executive Property Director
Chartered Surveyor MRICS
Richard joined Palace Capital in 2013
and related equity raise. He has extensive experience sourcing and managing commercial investments from his previous role running his own successful boutique property consultancy and before that, four Central London property firms.
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The information in this presentation may include forward-looking statements, which are based on current expectations and projections about future events. These forward looking statements reflect the Directors’ beliefs and expectations and are subject to risks, uncertainties and assumptions about Palace Capital Plc (the ‘Company’) including amongst other things the development of its business, trends in its operating industry, returns on investment and future capital expenditure and acquisitions, that could cause actual results and performance to differ materially from any expected futures results or performance expressed or implied by the forward looking statements. None of the future projections, expectations, estimates or prospects in this document should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumption on which such future projections, expectations, estimates or prospects have been prepared are correct or exhaustive or, in such case of the assumptions, fully stated in the document. As a result, you are cautioned not to place reliance on such forward looking statements as a prediction of actual results or otherwise. The information and opinions contained in this document are provided as at the date of this document and are subject to change without notice. No one undertakes to update publicly or revise any such forward looking statements. This presentation should also be read in the light of the Company’s annual results announcement for the year ended 31 March 2019. No statement in this document is or is intended to be a profit forecast or profit estimate or to imply that the earnings of the Company for the current or future financial years will necessarily match or exceed the historical or published earnings of the Company.